Pendle: a place synonymous with witches and Britain's most notorious diabolism trials. The candle-passing parlour game says, if it dies in your hand, you've a forfeit to give. If you're going to write a book about famous witches, it had better fly.

Winterson's novella is set in 1612, during the feverishly paranoid reign of James I. It describes the plight of a group of paupers, mostly women, accused of evil practices and tried at the August assizes. In the previous decade, the gunpowder plot almost did away with the king. Heresy is his obsession. Author of the instructive Daemonologie, he is, as Pendle's local magistrate puts it, "a meddler". In this fraught climate disfigured elderly ladies aren't safe, alchemists can be arrested for creating mechanical beetles, and Catholics are thumb-screwed. "It suits the times to degrade the hoc est corpus of the Catholic mass into satanic hocus pocus," notes William Shakespeare, who features briefly, and not preposterously, in Winterson's book.

Outlawed beliefs have been dangerously elided. "Popery witchery, witchery popery," Thomas Potts, recording clerk for the prosecution and the crown, is fond of chanting. Potts arrives in Lancashire, one of the wildest corners of the country, desperate to preside over a trial as sensational as North Berwick, where the sorcerers responsible for the king's shipwreck were prosecuted. He stakes out Pendle Hill, a landscape of moors and mists, mossy baptismal pools and forests, ready to accost beldames on their broomsticks.

So it comes to pass. A coven of aggrieved relatives meets in a remote tower on Good Friday for a mutton supper and to orchestrate the escape from Lancaster prison of their grand-dam, Old Demdike, who is suspected of sinister crimes. They conduct blood rituals. Into the fray rides Alice Nutter, astride rather than sidesaddle. A noble widow who owns Malkin Tower, she's implicated in the proceedings after the group is confronted by the authorities. Alice is a different kettle of fish from the rabble. Having made her fortune with a magenta dye and a royal warrant from the previous monarch, she's fiercely independent, and prone to charitable acts and harbouring fugitives. She's also mysterious, a realm-crosser. Strangely youthful though old, crackling with erotic appeal and a lover to both sexes, Alice is the kind of woman who makes Potts "feel less important than he knew himself to be".

That the story is predetermined does little to dry up the narrative suspense. Winterson's version has all the grisly freshness of a newly exhumed graveyard corpse. Hangings and burnings are coming, but along the way there are revelations, plot twists, celebrities and trysts – all very bold inventions.

The narrative voice is irrefutable; this is old-fashioned storytelling, with a sermonic tone that commands and terrifies. It's also like courtroom reportage, sworn witness testimony. The sentences are short, truthful – and dreadful. "Tom Peeper raped Sarah Device. He was quick. He was in practice." Absolutism is Winterson's forte, and it's the perfect mode to verify supernatural events when they occur. You're not asked to believe in magic. Magic exists. A severed head talks. A man is transmogrified into a hare. The story is stretched as tight as a rack, so the reader's disbelief is ruptured rather than suspended. And if doubt remains, the text's sensuality persuades. Teeth raining from the sky into Alice's lap click and patter like pebbles. A mouth painted on to a door feels soft as a lip, because it is a lip, momentarily. There's a forensic quality to the paranormal manifestations – smells, lesions, blood – that convinces, horribly. Occasionally, the daylight gate as a descriptive phrase becomes repetitious. By virtue of titular importance it's the most potent incantation, and could perhaps have been used more sparingly.

The usual witchy tropes are present – warts, cauldrons, familiars – but they are upgraded, made suitable and sensible. If a toadstool features it's because Old Demdike knows which ones growing in prison are edible. Enchanted mirrors are by-products of mercury experimentation in laboratories. To avoid clichéd associations would be coy. Winterson would rather take these motifs on, activate and invigorate them.

And she knows where true horror lies. Not in fantastical dimensions, but in the terrestrial world. Most grotesque and curdling are the visceral depictions of early 17th-century Britain – the squalor, inequality and religious eugenics. The subjugation of women and prostituting of children. The degloving and castration of Catholics. Poverty. Sickness. Desperation.

As well as being a gripping gothic read, the book provides historical social commentary on the phenomenon of witchcraft and witchcraft persecution. Fear is a relative thing; its effects are relative to power. If you are king and have nearly drowned in a conjured storm, why not expunge the old practices from your sovereignty? If an ugly woman's pet has mauled your leg, duck her in the river to reveal her true identity. If you are destitute, starving, with nothing to lose but your soul, a deal with the Dark Gentleman may be a very attractive prospect. If you believe in such things.

• This article was amended on 20 August because the wrong Sarah Hall had been credited with writing it. It is indeed by the author of The Beautiful Indifference and not the former senior Guardian correspondent of the same name. Apologies to both.